Yahoo Finance Oil prices are above $50 a barrel again—but for how long?
Oil prices today (May 26) charged back above the symbolic $50-a-barrel threshold, buoying financially stricken petrostates and oil companies. A two-year bear market at one point pushed the oil price down by almost 80% from its peak, but Brent crude, the internationally traded benchmark, is now back up by some 80% from January lows.
The reasons for the rise today include an big increase in demand for futures contracts by large investment funds, which are betting that prices will rise, in addition to supply disruptions and high gasoline demand.
Underlying all of this has been the removal of some 3 million barrels a day from global markets, reducing the global glut that was behind the price plunge:
In Canada, wildfires in Alberta have forced a reduction in production of 1 million barrels of oil a day.
Around 1 million barrels a day have been lost in Nigeria because of attacks on oil facilities by a militant group called the Delta Avengers.
The US, whose surge of shale oil production helped to create the supply surplus in the first place, is down about 1 million barrels a day from its peak of 9.7 million barrels in April last year, as drillers have idled their rigs in response to low prices.
Citigroup analyst Edward Morse cautions that all these factors can go the other way—Canadian oil sands will come back slowly, and though Nigerian supplies are iffy, US producers are likely to respond to rising prices by boosting production. Meanwhile, some OPEC producers and Russia plan to raise their output, making it unclear whether oil will keep climbing or dip back below the $50-a-barrel level.
“The return of US oil production on the back of higher oil prices, cost deflation across the sector, and Saudi intentions to raise crude production and exports are headwinds to a price rally,” Morse said in a note to clients.
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